Question

Assume a company is preparing a budget for its first two months of operations. During the first and second months it expects credit sales of $42,000 and $68,000, respectively. The company expects to collect 60% of its credit sales in the month of the sale, 35% in the following month, and 5% is deemed uncollectible. What amount of cash collections from credit sales would the company include in its cash budget for the second month

Answer 1

Answer:

$49,000 is the amount of cash collection from the credit sales

Explanation:

In this question, we are asked to calculate the amount of cash collections that a company will include in its cash budget for the second month from the credit sales.

To compute this, we need to calculate the percentage of credit sales in the previous month and the amount of credit sales in the present month.

We proceed as follows;

Let’s calculate for the month of the sales; that would be; 60% of $42,000 = 60/100 * 42,000 = $25,200

In the previous month, we have 35/100 * 68,000 = $23,800

We add these values to yield ; 25,200 + 23,800 = $49,000